Why Tweedy Browne is one of the coolest mutual fund companies in the world

Tweedy Browne has a reputation for being one of the world’s coolest mutual fund companies.

Its investment philosophy is aligned with the late Benjamin Graham’s concept of buying undervalued stocks, and the company is renowned for its integrity.

In a world where financial planners often compare portfolios to the S&P 500 (without including dividends) it’s nice to see honest fund companies that go beyond most people’s expectations.

For example, let me give you some raw data, as it applies to Tweedy Browne’s long standing Value Fund.

I’ll compare the results to the S&P 500 (with dividends reinvested) from 1993 until June 30, 2011.

Considering the length of this time period (18 years) and considering that we are comparing apples to apples (a stock market mutual fund vs. a stock market index) the comparison with the S&P 500 is a fair one.

I’ll give you the data that shows up on Tweedy Browne’s website, and then I’ll showcase how this information could be misleading, if presented by a less scrupulous firm or advisor.

Average Annual Return for Tweedy Browne Value Fund: December 8, 1993 to June 30, 2011 compared to the S&P 500 index

Average Return before taxes

Average Return after taxes

Tweedy Browne Value Fund

+8.61%

+7.7%

S&P 500 (including dividends)

+8.14%

(est)+8

Few American fund companies will show you a comparative return versus the S&P 500. And some unscrupulous organizations that make this comparison will fail to include the results of dividends.

But only the coolest of all companies will show you how their funds stack up to the S&P 500 index after taxes.

For those who are investing money outside of tax deferred accounts, this latest comparison is essential.

You can see that the Tweedy Browne value fund performed spectacularly over the past 18 years—beating the S&P 500 index: 8.61% a year for the fund, compared to 8.14% a year for the index.

But Tweedy Browne takes the coolest step next. It gives you their fund’s return after taxes, and compares that to the S&P 500.

Because mutual funds involve the buying and selling of stocks, they are less tax efficient than index funds. Tweedy Browne gives a post tax comparison to the S&P 500.

Even an index has a taxable liability, however small, and I (not Tweedy Browne!) estimated that liability above, giving the index an estimated after-tax return of 8% per year, versus the 8.14% that Tweedy Browne reports for it.

Let’s compare what $10,000 would look like for an equal dollar investment in the Tweedy Browne Value Fund, versus the S&P 500 index from December 8, 1993 to June 30, 2011

$10,000 invested

Before Taxes

After Taxes

…in Tweedy Browne Value Fund

$42,434

$36,624

…in the S&P 500 index

$39,333

$38,451

Tweedy Browne is definitely one of the coolest fund companies around. Here are the results of the Tweedy Browne Value Fund pasted directly off the Tweedy Browne website.

Annual Total Returns For Periods Ending 06/30/11 (%)

Tweedy, Browne Value Fund

Average Annual Total Returns

Return before Taxes

Return after Taxes on Distributions

Return after Taxes on Distributions & Sale of Fund Shares

MSCI World Index (Hedged to US$)2

S&P 5003

Morningstar Average Domestic Stock4

1 Year

19.87

18.79

14.27

22.02

30.69

33.51

3 Years

7.83

6.75

6.50

0.54

3.34

4.26

5 Years

3.97

2.76

3.25

-

2.94

3.65

10 Years

3.34

2.39

2.68

-

2.72

4.38

15 Years

7.21

6.21

6.08

-

6.49

7.24

Since Inception (12/08/93)1

8.61

7.70

7.47

-

8.14

7.63

Honesty is a virtue in any industry. But it’s rare indeed, in the money management business.

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About the author

andrew hallam

I'm a freelance finance writer, lucky enough to have been nominated as a finalist for two Canadian National Publishing Awards. I'm also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School, a book explaining how I became a millionaire on a teacher's salary, while still in my 30s. Working to empower people financially, I'm available to motivate and inspire people on basic retirement planning and index investing. I'm happy to comment on your questions, first, please read the Terms of Use.

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4 comments

I always thought Tweedy Browne was rather stodgy compared to other Mutual Fund companies, but in this industry that is probably a good thing. It is unusual to see a fund company compare itself so openly and after taxes to index investing. Looks like the indexes still win after taxes.

I have to admit, it's not too often I give the time of day at reading up on actively managed funds, but I am rather impressed with the performance of the Tweedy Brown Value Fund over the past 20 years.

@The Biz of Life: You're right – it still looks like indexes prevail.

Andrew, you're definitely doing something right with your index funds strategy. Do you know what the MERs would be for such a fund? When you mention average return after taxes, I'm assuming these are after management expense fees, correct?

The reported returns for the Tweedy Browne Value Fund are after fees. And considering that it has done so well, I'm surprised with how expensive it is. If memory serves me correctly, its expense ratio is about 1.5% (although, that's chump change by Canadian mutual fund standards).

Having celebrated their long term returns (not to mention their honesty!) they still, as you and Biz correctly point out, have lost to the index in a taxable account.

I commend them for showing that. How many mutual fund companies do we know that show their after tax returns compared to a broad index? Very few, I'm sure.

Andrew Hallam

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